Arm SB Q2 2018 Roadshow Slides FINAL
Transcript of Arm SB Q2 2018 Roadshow Slides FINAL
1 © Arm 2018
Q2 2018 Roadshow Slides Arm Limited
Arm Limited is a subsidiary of
v1
2 © Arm 2018
Security and Privacy
Autonomousmachines
Technology trends that will redefine all industries
Hyperscale cloud and connectivity
Artificial Intelligence in every device
Augmentedreality
3 © Arm 2018
Arm defines the technology that will redefine all industries
Mobile and Consumer
Networkingand Servers
Automotiveand Robotics
Internet of Things
Artificial Intelligencein every device
Autonomous machines
Augmented reality
Hyperscale cloud and connectivity
Security and Privacy
4 © Arm 2018
Arm introduction
Global leader in technology licensing
• R&D outsourcing for semiconductor companies
Innovative business model
• Upfront licence fee – flexible licensing models
• Ongoing royalties on partner sales
• Technology reused across multiple applications
Long‐term, secular growth markets >1,620 licencesGrowing by >100 every year>510 potentialroyalty payers
>21 bn Arm‐based chips shipped in 2017
~15% CAGR over previous 5 years
5 © Arm 2018
Chip shipment
Arm’s business model
Arm develops technology that is licensed to semiconductor companies
Arm receives an upfront license fee and a royalty on every chip that contains its technology
Business Development
1) Arm licenses technology to chip Partners
2) Partners developchips and shipthem to OEMs
3) OEMs sell productscontaining Arm‐based chips
Per chip royalty
License Fee
TechnologyArm SemiCo
Partner
OEMCustomer
Chip payment
6 © Arm 2018
Arm’s strategy Maintain or gain share in long‐term growth markets
• From mobile phones to networking infrastructure and serversto embedded smart devices and automotive
Increase value of Arm technology per smart device
• Invest in developing more advanced processors with higher royalty rates
• Physical IP and multimedia IP further increase Arm's value per chip
Explore and exploit new opportunities in emerging applicationscreated by the Internet of Things
Invest to create a sustainable business, fit for the long term
• Create superior returns by developing new technology thatwill deliver increased profits and cash generation in the future
7 © Arm 2018
Networking & Servers
Base stations, routers, switches, and servers for cloud and data centres
Networks evolve to cope with increased data at lower latency: virtualisation, integration and programmability
Most major chip vendors haveannounced Arm‐based products
Mobile and Consumer Devices
Arm’s main growth markets
Smartphones, tablets and laptops
Apps processor, modem, connectivity, touchscreen and image sensors
Growth coming from higher‐value Arm technology such as Arm v8‐A, octa core, multimedia
Embedded Markets
Automotive, white‐goods, wearables, smart devices in industrial and utilities
Microcontrollers, smartcards, embedded connectivity chips
300 companies have licenced Arm processors for use in embedded computing devices
$77bnTAM 2026
$85bnTAM 2026
$41bnTAM 2026
8 © Arm 2018
History of ArmJoint venture between
Acorn Computers and Apple
1990
Designed into first mobile phones and then smartphones
1993 onwards
Now all electronic devices canuse smart Arm technology
Today
9 © Arm 2018
Smart devices contain many Arm processors
Applications Processor chips can contain multiple Arm technologies
Arm v8‐A processor for OS and apps Cortex‐R controller for modem Cortex‐M controllers for peripherals Arm Mali multimedia processors:
GPU, video, display, camera, etc. Arm physical IP
When new functions are added to smartphones it creates opportunity for new Arm IP
Power Management
Bluetooth
Cellular Modem
WiFi
SIM
GPS
Flash Controller
Touchscreen and Sensor Hub
Sensor
Multiple cameras,front and rear
Apps Processor Chip
Arm CPU
10 © Arm 2018
0
5
10
15
20
1991 2017
Arm‐based chip shipments
Arm‐pow
ered
SoC
s shipp
ed (b
illions)
21.3bn
39%Market share in 2017
130bnArm‐based chips shipped to date
17.7bn
Calendar Years
11 © Arm 2018
Arm's opportunity continues to broaden
Semiconductor industry continues to grow:8% by volume, 3% by value over past five years
Proportion of chips with processors is increasing over the medium term: 65% in 2017
Arm is gaining share within the “chips with processors” segment of the industry: 39% in 2017
* Data source: WSTS, April 2018 and Arm, Industry volume excluding analog and memory
** Arm estimates
Calendar years
0bn
10bn
20bn
30bn
40bn
50bn
60bn
70bn
80bn
90bn
100bn
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total industry*
Chips with processors**
ARM shipments
12 © Arm 2018
From revenue to profits Over 95% of revenues earned in US dollars
Operating margins will be lower than in recent periods as investments grow faster than revenues
Royalties are a growing proportion of revenues
10% move in $/£ impacts profits by ~15%(forex impacts £ revenues and costs)
Cost increase as Arm accelerates investmentin R&D for future product developments
Financial numbers aligned with SoftBank reporting periods (01 April 2017 to 31 March 2018)
Excludes amortisation of intangibles related to the acquisition of Arm by SoftBank
FY 2017 Revenues $m £m %revs
Licensing 618 455 33%
Royalty 1,087 819 60%
Software and Services 126 94 7%
Total 1,831 1,368 100%
Costs (£m) 1,043
Adjusted EBITDA (£m) 325
Operating Margin 24%
Other expenses (£m) 180
IFRS EBIT (£m) 145
13 © Arm 2018
Qtr. ending Sept. 2018 – Financial summaryRevenues ($m) Q2 2017 Q2 2018 Growth
Licensing 123 124 1%Royalty 271 285 5%Software and Services 28 47 68%
Total ($m) 422 456 8%
Revenues (£m) 319 345 8%
COGS (£m) 21 27 26%R&D (£m) 130 167 28%SG&A (£m) 95 133 40%Costs (£m) 246 327 33%Adjusted EBITDA (£m) 73 18 ‐75%
Depreciation & amortisation 16 20 25%Other operating (income) expenses (£m) 22 (87)
‐IFRS EBIT (£m) 35 85 146%
Licensing can fluctuate quarter to quarter. In Q2, lower revenues are primarily due to contract delays as Arm China was established.
Includes $12m from recent acquisitions ofTreasure Data and Stream Technologies
Royalty revenue growth driven by market share gains and increasing royalty per chip
Includes FlexPot which previously fell into Q3
Additional consideration related to Arm China JV
14 © Arm 2018
Q2 Licensing: 35 is in the normal range
20
30
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50
60
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2Q4
Q1Q2
Q3
Q4
Historic licensing
14 16 1715Year 13
Q1
Q2
Q3Q4
Cortex‐A Cortex‐R Cortex‐M Mali
14
5
13
3
Average= 8
Average= 4
Average= 5
Average= 20
18Q1
Q2
Q3
The number of licenses for Cortex‐M processors has beenreduced since the introductionof the DesignStart Pro (DS Pro)program in June 2017.
Under DS Pro Cortex‐M processorsare available for no upfront fee.
In Q2, 65 DS pro licenses were signed for Cortex‐M processors
15 © Arm 2018
$0m
$100m
$200m
$300m
$400m
$500m
$600m
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2010 2011 2012 2013 2014 2015 2016 2017 2018
1994‐2009
2010‐2014
2015 to Present
Licensing enables future royalties Arm signed 51 licences H1 2018
Arm’s current royalty revenues are derived from licences signed many years ago
Growing base yields royalty revenues over long period
>1,620
~35% of Arm’s most recent licences are drivers of future royalty revenue
Cumulative Licences
1500
500
0
Calendar years
Significant Royalty Potential from Recent Licences
~550 licences
~550
~500 licences signed since Q1 2015
~500
1000
~550
~550
+180
+141+113
+141+51
Financial Years
Pre-2014 2015 2016 2017 H1-2018
16 © Arm 2018
Arm’s expanding opportunity
Mobile
Automotive
Infrastructure
Market Share Market Value Market Value
45% $30bn
$20bn
2017
Other mobile chips
Applicationsprocessor
50%
20%
90%$21bn
$14bn
$14bn
$17bn
$4bn
$8bn
~1%
10%
2026
$19bn
Other automotivechips
IVI and ADAS
Servers
Networking
$32bn
$18bn
$22bn
$15bn
$15bn
17 © Arm 2018
Arm’s expanding opportunity
Embedded
Total Market
OtherMarkets
Market Share Market Value Market Value
$20bn
2017
Microcontrollers/SIM Cards
20% $17bn
$21bn
$7bn
$165bn
40%
2026
All chips withprocessors(current TAM)
Other chips
ConsumerElectronics
25%
$27bn
$21bn
$30bnController in IoT Devices
$7bn90%$24bn
$10bn
$220bn
$130bn39%$200bn
All addressable chips (future TAM)
40%
18 © Arm 2018
Building a bigger business; built on strong foundationsEstablishing Arm China JV in Fiscal Q1 2018
10bn
x14095%
Chips shipped by Chinese partners using Arm processor technology
Growth in volume shipment by Chinese partners 2006‐2017
Chinese designed SoC based on Arm processor technology
>150Licensees
Arm China will be able to better access newlocal technology opportunities, especially inserver, smart meter/grids and IoT
19 © Arm 2018
Building a bigger business; built on strong foundationsEstablishing Arm China JV in Fiscal Q1 2018
341
10‐20~20%
Employees transferred to Arm China in Q1
Licenses signed in a typicalquarter with Chinese customers
Arm’s revenue came fromChina in 2017
Significant proportion of future revenues will be passed back to Arm Limited
>150Customers to novate fromArm Limited to Arm China
Arm China JV establishment was initiated inearly Q1 2018 and completed at the end Q1
Novation (transfer) process or historical contracts resulted in a delay to contractsigning in the H1 2018
As expected, licensing started to recover in Q2 and expected to get back to BAU by year end
20 © Arm 2018
Arm's current business
Arm develops intellectual property (IP) blocks which are used in silicon chips
Our partners combine Arm IP with their own IP to create complete chip designs
We earn license fees when we deliver Arm IP to our partners and royalties when our partners ship chips that contain Arm IP
Highly profitable and cash generative
Investment strategy
21 © Arm 2018
Accelerating investmentto increase share gains
Arm Pelion
Investing to create new revenue streams
Arm Pelion IoT Platform SaaS business Early-stage investment but many years in research Securely connect and manage any device, using any
communications technology, supporting any cloud platform Device Management: secure device identification, on-boarding and configuring Connectivity Management: manage IoT networks using standard-based comms Data Management: Ingestion and aggregation of data
Arm Pelion Partners
Generatingprofits and cashto be reinvested
22 © Arm 2018
Arm IoT ServicesSecure and scalable innovation from Device to Data
> 30 PB of customer data managed
> 2 million records per second ingested
> 300K queries per day
55 TB network data flow per month
Smart grid technology partnership with KEPKO, the largest electric power utility in South Korea
China Unicom partnership for China based services
customers800+
Ecosystem partners140+
Developers
350k+
23 © Arm 2018
Pelion IoT PlatformData Management Services
Device Management ServicesIdentity Access Mgt.
Connectivity Management Services
One View of Data
One View of Devices
Marketing
Asset Visibility
Energy Management
Smart Lighting
Industrial Automation
In‐homePatient Care
Deployment diversity Simplification for faster time to value Business value creation
Partner and Customer
ApplicationsBusiness Systems
BusinessIntelligence
Visualization
WorkflowSaaS
Analytics
Machine Learning
SaaS
Database
Marketing
Social
Ultra‐constrained
constrained
Rich node
gateway
Cellular
satellite
LPWAN
Pelion IoT Platform Overview
One View of Networks
SIM Mgt. ServiceQuality
Network Orchestration
Lifecycle Mgt.
Unified operational
view
Unified Security
Model
Unified Identity
24 © Arm 2018
Pelion Connectivity ManagementSingle pane of glass for easy connectivity management
One simple bill for global connectivity usage
Zero‐touch onboarding of devices
Support for any network ‐ LoRa, cellular, satellite
Built‐in security, network resilience
Choice of networks
Networksecurity
API availability
Unified view
Granular billing
GSMA eUICCcompliant
25 © Arm 2018
Pelion Device ManagementSecure identity on‐boarding, connection and lifecycle management services for all IoT devices
One simple portal interface for all IoT device management services
Support for any device, any vendor, and any cloud
Built‐in security from device to cloud
Secure asset and identity provisioning
Energy efficient connectivity
Endpoint and gateway device management
Firmware deployment and update campaigns
Endpoint / Gateway compute and access management
26 © Arm 2018
Pelion Data ManagementCollect and unify diverse data from heterogeneous devices, enterprise data and 3rd party sources
Security in trusted data ‐encryption in transition and at rest, control permissions
Rich ecosystem of data integrations
Fully managed solution that processes over 30 trillion records/day
Reduces the complexity with iteration and exploration of data
27 © Arm 2018
Partner & Customer Applications & Solutions
Pelion Data Management
Collect and Unify Analyze Access and Activate
Application Tools
Manage, Orchestrate & Automate
DataSources
• Multiple Sources• Efficient Storage• Management• ID Syndication
• BI Direct Connect• High Performance Querying• Machine Learning
• Multiple Destinations• Dashboard Reporting• Alerting• Personalization API
BusinessSystems
Customer Data& Insight Solutions
Device Data Solutions
28 © Arm 2018
0
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£200m
£400m
£600m
£800m
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£1,200m
£1,400m
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue
Total Costs
Adjusted EBITDA
Headcount
Revenues, investments and profits Until 2016 revenues grew faster than costs as Arm constrained investment in R&D to enable increasing profits
For the current phase of investment Arm expects costs to grow faster than revenues
This should yield even greater profits in the future
Fiscal years
Investment strategy
29 © Arm 2018
Investment philosophy
“Now is the time to be sowing, not harvesting”
Rate of investment is discretionary and under Arm's control
SoftBank has asked Arm to accelerate investments and to increase risk appetite
All costs are expected to be financed from IP business’ revenue streams
During this accelerated investment phase,costs are expected to grow faster than revenues
Arm has over £1.1bn of net cash and no debtIncrease in H1 2018 is due to sale of Arm’s stake in theArm China Joint Venture, net of the acquisition of Treasure Data Inc. and Stream Technologies Ltd.
£0m
£200m
£400m
£600m
£800m
£1,000m
£1,200m
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1‐2018
30 © Arm 2018
Return on Investments – Arm v8‐A case study Arm incurs R&D costs many years before revenue starts
Research into64‐bit computing started in 2000
Multiple processorsin development
Arm v8‐ADevelopment starts
First generationof processors
Architecturedevelopment andprocessor design
2008 2009 2010 2011 2012 2013 2014 2015 2016
Investment strategy
2017 2018
31 © Arm 2018
Return on Investments – General case Arm incurs R&D costs many years before revenue starts
Research into64‐bit computing started in 2000
0 1 2 3 4 5 6 7 8 9 10
New technologydevelopment starts
RecurringrevenuestartsFirst
technologyagreements
Initial developmentphaseInvestment ramps
New technologyannounced Technology
delivery
New technologydevelopment starts
Revenue continues for many years after the investment phase, yielding high profits over time
Initial developmentphase
32 © Arm 2018
Investing in people, infrastructure to create new products Costs are higher in 2018 as Arm expands R&D capability
Cost increases are expected to beconsistent with increases in headcount
Q2 2017Costs
Q2 2018Costs
£246m
£327m
8% increasein headcount
Baddebt
provision
Increased IT, facilities and otherinvestments
£22m
AnnualFlexPot*Accrual
£27m
£30m£2m
Investment strategy
*Part of Arm employee remuneration (for individual development)In 2017 this accrual was in Q3.
33 © Arm 2018
Arm Investor Relations Contact
Contact Title Contact
Ian Thornton Head of Investor Relations +44 1223 [email protected]
More content available on • Arm’s website: https://www.arm.com/company/investors• SoftBank Group’s website: https://group.softbank/en/corp/irinfo/